If you are not filing taxes for the first time, then you know how exactly does income tax refunds work. Usually, taxpayers have a clear idea about the refund amount on their taxes. But, there might come shockers. So beware and don’t be surprised if you receive a smaller amount of refund than expected in 2020.
Yes, there are a few conditions which might lead you to receive an unexpectedly less amount of tax refund. In this blog, we are going to uncover these reasons so that you can plan your taxes accordingly and take timely measures.
Reason 1: Unexpected year-end spendings
As you must already be aware of what income tax withholdings and how exactly they work. If not, then read our blog on SMART TAX PLANNING MOVES TO MAKE BEFORE 2019 ENDS to get a glimpse about the same.
These income tax withholdings might run short to cover your taxes if your financial transactions increase during the year-end. These unexpected spendings can have an unexpected impact on your 2019 federal income tax returns and increase the amount of tax owed. This becomes the sole reason for your withholdings to run short leading to a smaller amount of a tax refund.
Such year-end financial transactions might include: –
- Holiday and end-of-year bonuses.
- Dividends received from stocks
- Capital gains from mutual funds and stocks
- Profit earned from the sale of real estate or some other property
What to do to avoid this?
You can still make-do if you are expecting to be involved in any of the above-mentioned transactions. You can do that by making a quarterly estimated tax payment directly to the IRS for your 2019 federal income tax returns.
The deadline for making this 4th quarterly estimated tax payment to the IRS is January 15, 2020. You can explore the worksheet in Form 1040-ES that can help you figure out the right amount of estimated taxes to pay against 2019 returns.
Reason 2: Payment of other debts
The amount of your tax refund can also be decreased if you owe other uncleared debts to the IRS. If you do have such dues, then the amount of your refund will be first adjusted against such tax dues, and the remaining amount would be credited to you as a tax refund.
All or a part of your tax refund can be used to pay:-
- Past federal income tax dues
- State income tax
- State unemployment compensation debts
- Child and Spousal Support
- Other federal debts such as student loans, etc.
Rest assured, the IRS will notify you if your debts meet the criteria of an offset. The remaining refund, if any, shall be credited to you through a check or direct deposit as initially requested by you in your tax return.
Financial spendings, sometimes become dynamic, and so does the federal income taxes. The amount you earn or spend is directly related to your tax liabilities and hence keeping in check specific points can help you be informed and plan better. If you feel you need to have an expert discussion on your taxes, then feel free to contact your MyTaxFiler and get a clearer picture about your 2019 taxes.